Northern Offshore ‘Pleased’ With Results
Northern Offshore, Ltd. — a Bermuda holding company which operates offshore oil and gas production and drilling vessels in various markets around the world — today [Feb.24] reported that the financial results for the current quarter included an after-tax, non-cash charge of $205.4 million, or $1.32 per diluted share, due to a valuation impairment of the jackup fleet.
As a result, the company reported a net loss for the three months ended December 31, 2010 of $186.9 million, or $1.21 per diluted share, on revenues of $69.0 million. Excluding the impairment charge, fourth quarter 2010 net income would have been $18.4 million, or $0.12 per diluted share. This compares to net income of $17.4 million, or $0.11 per diluted share, for the fourth quarter of 2009, on revenues of $69.2 million.
The valuation impairment was calculated in accordance with US generally accepted accounting principles, which required that the carrying value of the company’s assets be adjusted to reflect their fair market value. The fair market value of the fleet was evaluated based on the most recent valuations performed on the company’s assets in December 2010.
For the full year ended December 31, 2010, the net loss was $141.1 million or $0.91 per diluted share. Excluding the above impairment charge and a $4.4 million maintenance charge for the floating production facility Northern Producer taken in the third quarter, the company would have reported net income of $68.6 million, or $0.44 per diluted share, for the full year of 2010. This compares to net income of $78.8 million or $0.51 per diluted share for 2009, excluding a $3.7 million bad debt expense taken in the prior year. Revenues in 2010 were $257.5 million, as compared to $279.2 million reported in 2009.
Gary W. Casswell, Northern Offshore’s president and CEO, commented “We are pleased with our year-end operating results and the strengthening of our balance sheet throughout the year. Our financial performance in the first quarter of 2011 should be supported by solid cash flow from the floating production facility Northern Producer and semisubmersible Energy Driller, but negatively affected by the shipyard stay for the drillship Energy Searcher. We see improvement in the Southern North Sea market and expect the financial contributions from our jackup fleet to improve as we reduce idle costs and execute new contracts.”
As of February 22, 2011, the company has a strong balance sheet, with an outstanding Revolving Credit Facility balance of $34.0 million, a cash balance of $23.2 million and a net debt position of US$10.8 million. The Revolving Credit Facility balance at year-end 2010 was $43.0 million, down $32.0 million from the third quarter of 2010. Cash at year-end 2010 was $19.0 million, of which $12.6 million was unrestricted, leaving the company in a net debt position of $24.0 million as of December 31, 2010.
The tariff from the floating production facility Northern Producer increased from an average of $123,000 per day in third quarter to $166,000 per day in the fourth quarter of 2010, reflecting increases in production volumes and higher oil prices. The company expects production and price levels to remain strong in the near term.
The drillship Energy Searcher is currently undergoing a required five-year special periodic survey and dry-docking in Singapore. The present budget for the dry-docking, which is expected to be completed in April 2011, is approximately $21.0 million. The company is actively marketing the Energy Searcher and has several interesting leads for both short- and long-term opportunities.
Mr. Casswell concluded “Although the Northern Offshore fleet is not of the latest generation, we are optimistic that the company will be able to deliver solid results by generating operational cash flow from existing and new contracts while minimizing expenditures.”
Fourth Quarter Analysis
Revenues for the three months ended December 31, 2010 were comparable to the same period of 2009. Decreases in revenue this quarter attributable to lower utilization of the jackup Energy Endeavour and drillship Energy Searcher were offset by higher utilization of the jackup Energy Enhancer [pictured] and higher tariff revenue from the floating production facility Northern Producer.
Drilling and production expenses for the fourth quarter of 2010 were $3.7 million lower compared to the same period of 2009 due to lower utilization of the fleet in the 2010 quarter. General & administrative expenses were $1.5 million lower this quarter as compared to the prior year fourth quarter due primarily to an executive separation charge in the 2009 fourth quarter.
Northern Offshore operates in the North Sea, the Indian Ocean, Russia, the Mediterranean Sea and Southeast Asia. The company’s fleet consists of one floating production facility and five drilling units (a drillship, a semisubmersible and three jackup drilling rigs). The company also provides rig management services, and is currently operating in this capacity on two semisubmersibles in the Caspian Sea.
